Tax on Arrears 

Purpose

This component provides for the arrears generated during the retrospective regular payroll run, to be taxed in the payroll run in which the arrears are paid.

The arrears, arising due to salary increments, long term settlements or revision of loss of pay, are generally a high value figure. Spreading the tax on arrears over the remaining payroll periods of the financial year results in high tax incidence on the employee in the subsequent periods, with insufficient payments to match. In such a case, this functionality provides for the arrears generated during the retrospective payroll run to be taxed in the payroll run in which the arrears are paid.

Integration

During a retroactive payroll run, the arrears are stored in the Stat.net recalc.diff. wage type (/551). The Calculate Arrears for Taxation rule (INAR) reads, in the original period the Stat.net recalc.diff. wage type (/551) for each of the payroll periods and stores the total arrears in the temporary variable table. Determine TDS rate and Calculate Tax on Arrears rule (INTD) calculates the tax on arrears, stored in temporary variable table, at the rate brought forward by the Determine TDS % for arrears operation (INTDS) and stores this tax in the Income Tax wage type (/460).

Features

·        If the total arrears generated in the regular run exceeds a particular amount, then the arrears is taxed by the Determine TDS rate and calculate Tax on Arrears rule (INTD). You must maintain this particular arrears amount in the Arrear amount limit constant (ARLMT) of table view Payroll Constants (V_T511P).

·        You must maintain the Determine TDS rate and Calculate Tax on Arrears rule (INTD) for the parameter of the Determine TDS % for arrears operation (INTDS). You must configure the Determine TDS % for arrears operation (INTDS) to determine the tax rate, based on any of the following parameters:

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                            a.      BON1 - Standard tax rate at company level configured in Arrear Payment - TDS % constant (ARTDS) of table view Payroll Constants (V_T511K).

                            b.      BON2 - Marginal tax rate (excluding surcharge) before arrears, of an employee.

                            c.      BON3 - Marginal tax rate (including surcharge) before arrears, of an employee.

                            d.      BON4 - Marginal tax rate (excluding surcharge) after arrears, of an employee.

                            e.      BON5 - Marginal tax rate (including surcharge) after arrears, of an employee.

                                                  i.       You can maintain the Arrear Payment - TDS % constant (ARTDS) and Arrear amount limit constant (ARLMT) in the IMG under Payroll India ® Tax ® Tax on Arrears  ® Maintain Tax Limit and Tax Rate for Arrears Payment.

                                                ii.       You can maintain the Determine TDS % for arrears operation (INTDS) in the Determine TDS rate and Calculate Tax on Arrears rule (INTD) in the IMG under Payroll India ® Tax ® Tax on Arrears ® Maintain Schema for Tax on Arrears.

·        Employees, who have a low salary and have no tax liability, tax on arrears will not be calculated even when the parameter for the Determine TDS % for arrears operation (INTDS) is maintained as BON1.